Monday, December 14, 2009
This chart puts the past 100 years of inflation into a context you've unlikely seen before. The message of this chart is that the "best" days of inflation are in the past. By best, I mean the times when inflation was low and relatively stable. The best decade, as shown in this chart, was the 1990s, with the second-best being the 1960s. The current decade is only the fourth-best.
(Note: the red bars mark the range between the highest and lowest level of year-over-inflation in each decade, as measured by the CPI. The yellow line represents the average level of year-over-year inflation in each decade. The blue bars represent the average plus or minus one standard deviation. Smaller red and blue bars correspond to less-volatile inflation conditions.)
The volatility of inflation has picked up in the past decade, even though the average level of inflation has been relatively low (2.6%). This volatility was driven apparently by extremely volatile energy prices, but energy price volatility arguably was driven by erratic monetary policy. The Fed can (and usually does) blame unwanted or volatile inflation on external factors beyond their control, but ultimately the Fed bears the responsibility for the level and variability of inflation.
Posted by Scott Grannis at 12:01 PM